What To Know About A Fixed-Rate Mortgage When Buying A House
When you start shopping around for a mortgage loan, you might see many options available. One option you will see is the choice between a fixed-rate mortgage and a variable rate. What is the difference? Is there anything you should know about fixed-rate mortgages before applying? Most people prefer fixed-rate loans, and here are several vital things to know about them as you begin looking for a mortgage.
The Interest Rate Is Always the Same
A mortgage that comes with a fixed-interest rate is one that offers the same rate for the entire duration of the loan. If you get a fixed rate on a 15-year loan, the rate will remain the same for 15 years. If it is a 30-year mortgage, the rate will stay the same for the entire 30 years. Having the same rate provides security and other benefits, and this varies from how an adjustable-rate mortgage works.
A mortgage that comes with an adjustable rate is one that is subject to change. Adjustable rates often change after five or seven years, and your loan will tell you when the change will occur. When it changes, the rate will adjust to the current rates in the economy at the time of the change. This could mean a drop in the rate or an increase.
You Might Pay a Slightly Higher Rate
If you compare the rates of fixed mortgages and adjustable loans, you will likely see that a fixed-rate loan requires paying a slightly higher rate than an adjustable mortgage. You pay a little extra for the security of the fixed interest rate. The difference in the rates is usually relatively minor.
You Have Fewer Risks
A fixed-rate mortgage offers predictability and security. You will know that your mortgage payments will never change, even if interest rates skyrocket. You will have a locked-in rate for the entire time you hold the loan. When you pick a mortgage with an adjustable rate, you do not have this security and predictability, as the interest rate could significantly increase when the time comes for it to change.
You might prefer to get a fixed-rate loan if you plan to stay in the house for a long time. If interest rates ever fall, you can always refinance the loan to acquire a lower rate. You can find out more about the current interest rates for loans by looking them up or talking to a mortgage lender.